A Swiss finance boutique is quietly disrupting wealth management digitally – just don't call them a robo adviser.
Dufour Capital isn't shy about its ambitions: «We're convinced that rule-based investment solutions are the future of wealth management,» co-founder and managing partner Sascha Freimueller told finews.com. Along with co-founder Ryan Held and partner Roman Timm, he is looking to compete with the coterie of Swiss private banks and wealth managers with simpler, cheaper, digital-based solutions.
The company doesn't want to be known as a robo adviser: Dufour is a digital wealth manager, the trio insists, whose digital investment capabilities include thorough and personal advice process. The start-up differentiates itself from robo advisers not only by forgoing the construction of a cool app; Dufour also has different goals and technology.
«Robo advisers aren't going to disrupt wealth management,» Freimueller said. «Their passive-based models, purely digital channels for clients, and thus the lack of personal contact to build trust will simply not be able to reach major chunks of assets.»
Rules-Based Pioneer
To be sure, Dufour is like robo advisers in that it hasn't set an high minimum bar of assets to get in the door, but says its average «ticket» size is at least $300,000. Its investment solutions cannot be offered profitably with anything less, the wealth start-up says.
The biggest difference between the fintech, which operates out of a former bakery in Zurich's fashionable Seefeld area, and robos is Dufour's rules-based approach. Freimueller, Ryan and Timm are among the first Swiss providers of such solutions.
In 2011, the three – Freimueller and Ryan were previously with Man RMF in hedge funds while Timm was part of top management in SIX's payments division – began tinkering with the idea of offering hedge fund techniques on relatively simple exchange-traded fund portfolios.
Transparent vs Opaque
Rules-based investments, or those following a series of pre-set guidelines, often based on academic research, are transparent and understandable – which sets them apart from complex and opaque quantitative models.
From portfolio to portfolio, a certain rule is applied, «we program this as an algorithm – and from that point on, the computer takes over the portfolio and risk management,» Freimueller says.
The benefit? Like systematic management, it is emotionless and doesn't rely on predictions. The competitive advantage to robo advisers is a more dynamic investment style which automatically and continuously adapts investment risk.
Blackrock on Board
Dufour can also maintain a slim structure because 90 percent of all activities are digitized and automated. «Otherwise, we'd need a team of about ten employees,» Freimueller says.
U.S. asset giant Blackrock utilizes Dufour Capital technology in setting up its rules-based ETF strategies; more than $1 billion in client money is managed using the Swiss boutique's approach. Its digital efficiency is its potency – but equally, the reason that Swiss banks aren't exactly rolling out the red carpet for Dufour Capital.
Most talks with top executives of Swiss banks have been sobering, Freimueller says. «Banks are fearful of digitizing the core of wealth management because it would change their DNA,» he notes.
Reluctance by Banks
The firm has notched up a few key clients, including Swiss wealth manager VZ Vermoegenszentrum, which uses Dufour's technology in its ETF strategies and also took a stake in the company early on. Basler Kantonalbank and subsidiary Bank Cler began using Dufour's technology last year, and a Swiss private bank also came on board recently. Dufour uses St. Galler Kantonalbank as its deposit bank for private client money.
Because of the generally reluctant stance by banks, Dufour wants to focus more strongly on private clients itself. With its existing partnerships and a track record of several years, the partners say they are ready to target clients directly. It is getting an indirect boost from UBS: the Swiss giant has racked up more than $30 billion in rules-based client investments since it began offering the strategy two years ago.
